When The Tidal Wave Hits, Part I

Disaster is nearly upon us. This has been a regular theme in these commentaries for several years. Increasingly, however, these warnings draw reactions of apathy rather than alarm. The fact that our house-of-cards economies (and societies) have not already unraveled does not mean that this was a false alarm. It means that disaster has gotten much more imminent.

When straight discourse fails to convey a message, writers typically resort to a metaphor. But which one? The phrase “the perfect storm” has been popularized in our culture. However, to an audience which perceives itself to be standing on dry land, that metaphor would likely fall flat.

Readers who are warned that an economic crash is coming think to themselves, “I’ve seen an economic crash before.” That would be the Crash of ’08. Call that a once-in-a-generation event. They’ve heard of the Crash of ’29 and the Great Depression that followed. Call that a once-in-a-lifetime event.

The average person has a vague understanding of the Crash of ’08, but that was a very understated dress rehearsal of what is coming. Except for the most elderly members of our societies, we have no personal recollection at all of either the Crash of 29 or the Great Depression. Yet most people reading this will tell themselves they “understand” what is coming.

Now think about a tidal wave. People living on islands in the ocean or particularly exposed coastlines will have witnessed terrible storms – and the magnitude of the waves that such storms generate. Perhaps once in a generation they will witness a truly horrific storm and commensurately greater waves. Recorded history may describe once-in-a-century (or longer) “perfect storms”, supposedly producing the ultimate waves.

Residents of these islands and coastal areas prepare for terrible storms. Many will prepare for truly horrific storms. A few may even prepare for the perfect storm. But no one anticipates a tidal wave, a wave greater than anything that is possible, under normal circumstances. There is only one way to prepare for a tidal wave: escape to higher ground before the wave hits.

What evidence is there that an economic tidal wave is approaching – an event for which there is no historical precedent ?

We’re saturated with the evidence. We’re assaulted with the evidence. We’re drowning in the evidence.

Debt

There is no historical precedent for the endemic levels of debt which exist around most of the world, and which reach their sickening pinnacle in the West. Readers have been warned that a Debt Jubilee is coming.

Many nations now have levels of debt which could never be brought under control, let alone ever retired. If these nations were corporations they would have already been forced to declare bankruptcy. Instead, thanks to the fraud of the fiat-currency printing press, they delay those bankruptcies – through flooding our economies with their absolutely worthless paper .

Judging by the apathetic response to warnings of “Debt Jubilee”, apparently a mistaken impression has been created. Debt Jubilee: everyone’s debts are wiped clean. A cause for celebration, right? Wrong.

Before we ever see a Debt Jubilee, we will see a level of economic pain which few people reading this can imagine. It will have to be a level of economic pain sufficient to cause our corrupt governments to collectively emancipate us from our current Debt Slavery .

Look at Greece. Look at the level of economic pain which has already been inflicted upon that population. Officialunemployment is greater than 20%. Official youth unemployment is over 50%. The real numbers are significantly worse. Ninety percent of the unemployed are paid no unemployment insurance.

The suicide rate in Greece has more than doubled. At one point, it increased by more than 40% in just five months. Greece and its citizens still have their Debt Slavery. Debt Jubilee is a necessity, but to get there we will likely have to live through a nightmare beyond comprehension.

Asset bubbles

We’ve all seen asset bubbles before, right? We’ve seen them pop. We understand what that means. Wrong.

The number of asset bubbles which currently surround us and the magnitude of these bubbles is historically unprecedented. The rupturing of these bubbles will be an event for which there is no historical precedent.

Look at our interest rates ! They have not simply been taken to the lowest levels in the entire history of our nations. They have been taken to these reckless levels and left there, permanently. Low interest rates fuel asset bubbles, the definition of “easy money”.

The lowest interest rates in history, permanently frozen there by the criminal central banks , are rocket fuel for asset bubbles. What happens when these rockets run out of fuel – and start plummeting back toward Earth?

We don’t simply have the largest bond bubbles in history in the Western world. As already noted, all of these governments are bankrupt. Their bonds are not “overvalued”. They are worthless. Tens of trillions in supposed “assets” are about to go poof!

Then we have the stock market bubbles. People look at the bubbles in Western equity markets in absolute terms and think to themselves: they’re not that bad. Wrong.

In typical stock market bubbles, back when we had at least semi-legitimate economies and semi-legitimate markets , valuations would get inflated during economic booms.

That’s not what we have been seeing for the last eight years. Since the Crash of ’08; Western economies have not “grown”. They have gotten sicker and sicker and sicker. In Europe, the scorched-earth policy known as Austerity has already reduced many of the Euro zone economies to rubble.

Those economies not already in ruin are experiencing faux prosperity. Even as poverty rates soar, the majorities in luckier nations still think they are “doing OK”. Wrong.

While real wages continue to sink for the vast majority, their “prosperity” is derived from the illusory wealth contained in – wait for it – asset bubbles.

Yet for eight years, Western stock markets have been rising, not falling. In the U.S., markets have been rising rapidly, and now almost vertically. The reality-gap in our stock markets has never been greater, especially in the U.S. – greater even than before the Crash of ’29. There’s a reason why 86-year-old Warren Buffett has got $85 billion of his vampire-dollars sitting on the sideline.

Many readers will still be clinging to a false sense of security. They have their homes. For readers living in one of Canada’s or the U.S.’s extreme bubble-markets, most likely they look at their homes as being roughly equivalent to the Crown Jewels. Fool’s Gold.

Eight years of the lowest interest rates in history. Eight years of the easiest money in history. Eight years of the lowest mortgage rates in history. And many Western real estate markets were already seriously inflated before that.

Never before have Western real estate valuations become so wildly inflated. Never before have we seen populations which were so cash-poor but (supposedly) land-rich. What happens when millions of these cash-poor people lose their jobs and become cash-poor to the point of desperation?

They will all try to sell their homes, at the same time, in markets which were already in free-fall. The real estate bubbles will burst before the real job losses hit – job losses which will be collateral damage from all of these asset bubbles simultaneously bursting.

How low is low?

Bubble markets like Vancouver and Toronto are quadruple any sort of rational valuation. That implies prices falling by 75% in those markets. However, in “crashes” markets always overshoot on the way down. Think 90% losses before a final bottom is in – whenever that might be.

The good news for readers living outside of the extreme bubble markets is that their land is not nearly as grossly overvalued. The bad news is that they will not be spared severe pain. The horrific crashes guaranteed for Toronto, Vancouver, and equivalent cities in the U.S. will severely depress all markets like a contagious disease. Those homeowners thinking they will be spared at least a 50% hair-cut are living in a Fool’s Paradise.

As all these asset bubbles all start to implode simultaneously, $10’s of trillions in illusory Western wealth will evaporate (not counting the $1+ quadrillion in the derivatives market which will also disintegrate). Any bonds you hold will be worthless. Any stocks you hold will (with rare exceptions) retain only a small fraction of their current price. Any real estate you hold will retain only a small fraction of its current price.

Our debts and our asset bubbles are only some of the economic diseases which are already far worse than at any other time in our history. Part II will address more of these horrific economic diseases and then turn to some of the political and social diseases from which we suffer – which are also far worse than at any other time in our history.

Author: Sprott MoneyEstablished in February 2008, Sprott Money Ltd. is a leading precious metals wholesale, institutional and retail dealer selling gold, silver and platinum bars, coins and wafers online and over the phone. Our storage program gives clients the ability to store their precious metals in multiple storage facilities located in Canada, the United States and internationally. We also recently launched IRA precious metals accounts for our U.S. clients.Our company strives to facilitate ownership of precious metals no matter how big or small your portfolio. Since our inception, we have prided ourselves on superior customer service, providing our clients with only the highest quality bullion products, in addition to delivering them discreetly and on time.Sprott Money Ltd. is a privately held company owned and operated by Eric Sprott